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Return on Capital (ROC)

Return on Capital (ROC)

The Group has two main Return on Capital (ROC) measures.

The first measure, Standard Return on Capital, is primarily a Group measure. It is stated on a non-lease adjusted basis, although we also quote a lease adjusted number. The asset base includes goodwill.

The second measure, Lease Adjusted ROC excluding Goodwill, is used to monitor performance at a geographic divisional level.

Group Return

2010/11

2009/10

Increase

Standard Return on capital (ROC)

9.6%

8.3%

+1.3%pps

For Standard ROC, Return is calculated as post-tax Retail Profit less central costs and excluding exceptional items, other than realised property profit. Return is then divided by a two point average of Invested Capital (calculated as Net Assets excluding Net Debt and Pension related items including related Deferred Tax).

The strong operating performance combined with improved asset turns has resulted in the Standard ROC performance increasing from 8.3% to 9.6% in 2010/11 compared to the Group’s weighted average cost of capital (WACC) of 8.1%.

Lease adjusted ROC is based on the same definition except it excludes property lease costs, and Invested Capital is adjusted for lease costs capitalised at the long-term property yield. Lease adjusted ROC has increased from 6.8% to 7.3% in 2010/11, compared to the Group’s lease adjusted cost of capital (WACC) of 6.8%.

Geographic divisional return

Kingfisher’s underlying ROC by geographic division is set out below.
All divisions improved their returns in 2010/11. Return is stated after adjusting for property lease costs and before property profits. Invested capital excludes goodwill but includes capitalised leases: